HK watchdog raps Citi over algo misfires

The Securities and Futures Commission (SFC) has reprimanded Citigroup Global Markets Asia Limited (Citigroup) for its failure to ensure that certain securities orders executed through its algorithmic trading system between April 2009 and May 2010 would not cause undue price impact to the market in resolving the SFC's concerns over Citigroup's algorithmic trading system.

The SFC's investigations into Citigroup's use of algorithmic trading system to execute client orders on four occasions found that Citigroup's execution in those cases resulted in a material increase or decrease in the price of the relevant stocks within a very short period of time, before the stock prices returned quickly to their original levels.

In reaching this resolution, the SFC took into account that:

Citigroup co-operated with the SFC in resolving the SFC's concerns; Citigroup agreed to engage an independent reviewer to conduct a forward-looking review of its algorithmic trading system to ensure compliance with the new regulation on electronic trading which came into force on 1 January 2014 (Note 2); Citigroup has an otherwise clean disciplinary record in relation to its algorithmic trading; and the price impacts on the market occurred in 2009 and 2010 in relation to trades conducted through Citigroup's algorithmic trading system, which had been replaced.

The SFC would have imposed a heavy fine if Citigroup's failures occurred after 1 January 2014, when the SFC's revised standards on electronic trading came into effect.